Digital Advertising and the Transatlantic Trade and Investment Partnership

Introduction

On February 12, 2013, President Obama announced, during the state of the Union address, his administration’s plan to launch talks on a comprehensive Transatlantic Trade and Investment Partnership (TTIP) with the European Union. President Obama indicated that the US and EU would seek to negotiate a deal addressing both tariffs and non-tariff barriers (NTBs), such as duplicative regulations. Historically, US trade negotiations have exclusively focused on tariffs, avoiding the difficulties in coordinating regulatory environments internationally. However, the current administration has voiced interest in negotiating “21st-century trade agreements” that address regulatory issues in growth industries, including e-commerce.

Since President Obama’s announcement, the United States Trade Representative (USTR) and the EU Directorate-General for Trade (DG Trade) have begun formal negotiations on a multitude of issues, including several related to e-commerce and telecommunications.

The US and EU are among the world’s most vibrant digital advertising marketplaces. The two regions accounted for over 60% of global digital ad spend in 2012. As a result, a trade deal between the US and EU that boosts the innovative potential of the digital advertising industry would have long-lasting positive impacts on the US and EU economy.

Background and Process

Pre-dating the TTIP negotiations, the US and EU created the High Level Working Group on Jobs and Growth to analyze existing trade barriers. The Working Group resolved the US and Europe should move forward with transatlantic trade negotiations, and identified five potential options for expanding transatlantic trade and investment:

Elimination or reduction of conventional barriers to trade in goods, such as tariffs and tariff-rate quotas.

Elimination, reduction, or prevention of barriers to trade in goods, services, and investment.

Enhanced compatibility of regulations and standards.

Elimination, reduction, or prevention of unnecessary “behind the border” non-tariff barriers to trade in all categories.

Enhanced cooperation for the development of rules and principles on global issues of common concern and also for the achievement of shared global economic goals.

The first round of TTIP negotiations took place on July 8-12 in Washington, DC. During this round negotiators discussed cross-border services, intellectual property rights, investment and e-commerce and telecommunications, among other topics. The second round of negotiations took place November 11-15 in Brussels, and addressed trade in “services, investment, energy and raw materials, and regulatory issues.” All negotiating rounds are conducted in private. Following each round, the US and EU provide summary remarks, outlining the topics addressed during the negotiations. The readout from the first and second negotiating rounds are available on the USTR website.

Although tariffs between the EU and US are already low (on average 4%), the combined size of the EU and US economies and the trade between them means that dismantling tariffs will be good for jobs and growth. Annual gains are estimated to be as high as $128 billion in the US and $160 billion in the EU. A study by the Bertelsmann foundation, Atlantic Council, and British Embassy to the United States found that an agreement could lead to the creation of nearly 750,000 US jobs across all 50 states.

The negotiations will also seek to remove non-tariff barriers (NTBs) to trade. NTBs result from differences in regulations and standards among governments. In practice, streamlining regulatory processes proves to be a difficult process. Although both the EU and the US have well-developed systems for ensuring safety and consumer protection, they often adopt different approaches to achieve the same goal. Because of these complications, it is only in recent years that countries have considered including NTBs within the scope of bilateral trade agreements.

Key Issues Impacting Digital Advertising and E-Commerce

Several topics being addressed during the negotiations have implications for the digital advertising industry, including cross-border data transfers, server localization requirements.

Revocation or elimination of Safe Harbor Program and adequacy determinations:

Companies should be provided with an efficient means to demonstrate compliance with local privacy rules to enable cross-border data flows. Currently, the Safe Harbor framework has provided US companies doing business in the EU with a method to comply with EU data protection laws through self-certification. Over 3,000 companies, including many IAB members, have participated in this program to demonstrate their high level of privacy protection and work with European companies in serving EU citizens. The Safe Harbor framework has been called into question amidst revelations about US national security practices. However, the US and EU must differentiate between national security practices and commercial privacy practices, and directly address concerns over government access to data. The TTIP negotiations could address trans-border data flows by providing efficient means for companies to comply with international data protection regulations. This will ensure privacy rules do not create unnecessary barriers to cross-border data flows on which digital markets, including digital advertising, depend.

Localization requirements:

Negotiations could prohibit requirements that service providers use local servers or establish a local presence in order to do business. “Forced localization”, as this issue is commonly referred to, has been an increasing problem as governments attempt to respond to national security concerns and exclude foreign businesses from domestic markets.

In 2011, the US and EU agreed to non-binding trade-related principles for ICT services which stated that governments “should not require ICT service suppliers to use local infrastructure . . . as a condition of supplying services.” Negotiations could create enforceable language to this effect that prohibits such requirements from being adopted in the two largest digital advertising markets.

Political Landscape

At the first round of negotiations in July 2013, stakeholders expressed concern that recent revelations regarding US Government data collection would stall or hinder efforts to lift NTBs inhibiting digital commerce. As a result, consumer and privacy advocates have argued that the TTIP negotiations should not address privacy laws because it would undermine “democratic processes” to create greater privacy protections for individuals. To prevent the NSA/PRISM Scandal from hindering progress towards TTIP, US negotiators have stated that such issues will be discussed in a separate forum, the EU-US working group on data protection and privacy. Viviane Reding, Vice President of the European Parliament, applauded this decision, stating “[data protection] is different in nature to the tariff of a good or to the schedule of a service. That’s why a discussion on standards of data protection should be kept separate from the give and take of a trade negotiation.” At this time it remains unclear how the suggested exclusion of privacy issues will impact the e-commerce chapter of the negotiations.

In the United States, President Obama is asking that Congress renew Trade Promotion Authority (TPA) to help with the passage of TTIP. TPA grants the President negotiating authority for trade agreements and requires Congress to approve or disapprove of the final agreement within 90 days without amendments. TPA gives Congress the ability to present “negotiating objectives” to USTR that specify what should and should not be included in the final agreement.